True Franchise Due Diligence
Franchise buyers tend to resist full on due diligence not because they are stubborn or because they think they know better, but because they are not experienced in that area.
True franchise due diligence is viewed differently buyer to buyer
Every person who has ever bought a franchise will say that they conducted due diligence, but what does that mean? For some, it means trusting the salesman, the broker, the consultant, or the president of the franchise brand. And interestingly enough, in some cases it works out. For others, it means actually reading the many pages of franchise disclosure documents and the franchise agreement. While, in the majority of cases they will not understand all that they’re reading, it’s a major step forward. And yes, for many of them, things can work out. Take another step and the buyer will visit with an attorney and an accountant. This is all well and good, but does even the last example represent true franchise due diligence?
Half way is not good enough when buying a franchise
Let’s assume that you ride your bicycle fifty miles a day, four days a week for exercise. You’re good at. Your time is where you want it to be. Your friends and family are more than impressed with your commitment, your stamina, your fit condition. That’s all wonderful, but you won’t beat a Tour de France racer.
True franchise due diligence should be approached in the same light. Take the examples above concerning buyers. For those who take the word of the President of the franchise, that’s enough …. If it works out. For those who read the docs, well that’s due diligence too. And of course, if one takes all the material to an attorney and an accountant, what more could be done to complete true franchise due diligence? The answer is: A LOT!
There is expertise in every field.
Skip ahead to the buyer who includes their attorney and accountant in their due diligence and consider this question. Who is more likely to catch all the red flags found in a disclosure document, your family attorney or a franchise attorney? Who is more likely to spot operating problems and relationship problems within a franchise system, your accountant or a trained eye who is always studying franchise systems? Keep in mind: the avid cyclist vs. Tour de France competitor.
If you’re buying a franchise, get the best help you can find. It’s no guarantee for success because it takes more than true franchise due diligence to succeed, but it’s the right path.